Buying a Franchise: Where do I start?
If you are looking to buy a franchise you are at an exiting point in life – there’s nothing quite like stepping into something new that can drastically change your life. It’s important to stop and evaluate what a good franchise truly is though so that you make the right decision before buying. Below you will find things to consider and educate yourself about before you decide what franchise to go for.
- Brand Awareness
One of the things you are paying for when buying a franchise is the right to use a brand. Apart from an established business model, this also means an established brand in the eye of the public. Therefore, whilst it can be exciting to buy into a new franchise that’s just started, it won’t have the brand recognition of say, McDonalds.
You have to weigh the pros and cons of available franchises in your area and look at if you need a brand that’s already recognized by people in your target group, or if you are OK to buy into a franchise that’s just started. Maybe the newer franchise offer the better products. Just beware you won’t get brand recognition straight away.
- Check the Numbers
If you are buying into a successful franchise that seems to be spreading like wildfire, you will make tons of money, right? Not necessarily. Some franchises are successful because they provide products that are wanted in the marketplace, but it doesn’t mean that the earning potential is huge. It depends on what the margins are. Check the profit margins before you buy.
Likewise, there may be many locations of a certain franchise in your city, because people do indeed want the product. The question is how many of these franchises survive and for how long? If a franchisor would grant permission to 200 franchisees to operate within a city and 150 of these survived their first two years you could still, as a consumer, see that the product is popular. The franchisor is doing well. The success rate of franchisees is still low though.
- What Support Is Offered?
The franchisor will provide you with some form of support if you decide to buy into the franchise. Usually this includes training yourself and the staff, guides to systems and operations and staff manuals. Some offer training on site, others courses, some just training material. You need to know what level of support you feel the most comfortable with. If you are new to owning a business you might more support.
- Decide on What Kind of Franchise You Would Like
Just because you love food doesn’t mean you are suitable to run a food business. Likewise, just because you like people you might not want to be working in a shop from 8am to 8pm every day.
When looking at what franchise to buy you have to consider everything that comes with that franchise:
- What are the opening hours? Do you have to work early mornings, late nights or weekends?
- How many licenses do you need to operate the franchise? (Such as health and safety, hygiene, etc.)
- Can you do it from home, a location nearby, or will you have to set it up further afield?
- Are you OK running an online business with little client contact, or do you need to be around people?
- Do you want to buy a franchise where expansion is made easy, or do you prefer a mom and pop type franchise?
- Know Your Market
You may have fallen in love with a certain cookie franchise business, but will those kind of cookies, for that kind of price sell in your area? If not, are you willing to set up the business in another area? Investigate trends in the area you are looking to set up a franchise in, or if you find the franchise first, then go about finding the perfect area for that franchise.
Of course, if you are doing B2B or looking to operate an online franchise business, then it’s not the area you are in per se, but how easy it will be to contact your clients from where you are at, as well as overheads in that particular area.
- Speak to Previous and Current Owners
If you are considering buying into a particular franchise, make sure you find out who the owners of the most profitable ones and the least profitable ones are. Go meet them and try to figure out why they are doing so well/poorly.
- Check the License Fees
When buying a franchise you always have to be aware of what the license fees are and what you receive in return. For example do the fees include:
- Staff training
- Ongoing support for yourself as the owner
- A business model that’s proven successful time and time again
- Staff manuals
- Operations and systems manuals
- Expansion fees
- Brand awareness
How much investment is needed to buy the franchise you would want? And what are the financing options? Sometimes banks provide very preferential loans to people wanting to buy franchises. However, you still have to ensure you are willing to take the risk of getting the loan. Make sure you know how much money you are willing to spend before you start shopping around for a franchise. You can always find something to suit your budget, but if you don’t set a strict budget it’s only too easy to fall for a business that’s way too costly. You should only take risks you are comfortable with.